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Traditionally, a lender would require a 20% deposit and loan the other 80% to secure a property.

Many banks and lenders offer home loans with loan-to-value ratios (LVRs) as high as 95%, i.e. a 5% deposit, but with the expectation that the borrower pays LMI.

A common misconception is that LMI covers the borrower. However, it’s actually to cover the lender in the event the loan cannot be repaid.

When faced with strong property price growth, many borrowers have used LMI as a way to combat the market outpacing their saving capacity. It enables them to get into the market sooner than if they saved up for a 20% deposit. However, this doesn’t come without some considerations.

Data from Digital Finance Analytics shows the rise in home loans attracting LMI since March 2019:

LMI Loan Gorwth.jpeg

Is LMI worth paying?

LMI could be worth paying if you don’t have the time to save up a 20% deposit. While no one has a crystal ball, borrowers would need to weigh up property price growth compared to paying LMI and getting into the market sooner.

In a property market where prices are rising quicker than you can save, or if there’s limited-time opportunity for you to snap up your dream house at a good price, getting in faster and paying the extra fee can be a way to secure a home quicker.

Some lenders favour borrowers with a 20% deposit, and many that offer low-deposit home loans outsource their insurance requirements to accredited LMI providers.

Banks' and lenders' LMI providers


LMI Provider






ARCH Capital




Great Southern Bank


St George

ARCH Capital

Capitalised LMI explained

Upfront LMI premiums can cost tens of thousands of dollars dependent on the deposit size and value of the home. When borrowing in excess of 80% of the home’s value from a lender, the borrower might not have enough money to pay the LMI upfront.

This means that the lenders mortgage insurance cost will be added to the cost of the loan, which essentially means the borrower will be increasing the loan size and the interest payable. Interest is then payable on this extra LMI cost.

When LMI is baked into the home loan, the final LVR is pushed higher. The smaller the deposit, the higher the LMI premium payable and hence a higher final LVR overall.

Borrowers need to factor this in to the cost of their home loan if they have less than a 20% deposit.

Capitalised LMI Case Study

Mort Gage is planning to purchase his first property. He plans to live in this property but is fearful of being outpaced by the quickly rising property market in Sydney.

He has a $112,500 deposit saved but wishes to purchase a home for $750,000 in Sydney’s western suburbs, meaning he has a 15% deposit or 85% LVR.

Mort chooses an LMI premium with ANZ, costing him $10,612 on his loan when he has a 15% deposit.

This means he is effectively adding $10,612 to his loan of $637,500 and will pay interest on the total amount of $648,112.

Stamp duty on your LMI premium

The costs above exclude stamp duty on the LMI premium, which is different from stamp duty charged on the purchase of a property.

Different states have different charges on a percentage on your LMI premium:

  • NSW: 9.0%
  • VIC: 10.0%
  • QLD: 9.0%
  • SA: 11.0%
  • WA: 10.0%
  • ACT: N/A
  • NT: 10%
  • TAS: 10%

To find more information on lenders mortgage insurance for your situation, use our LMI calculator to estimate your repayments.